So I tried TikTok

I had to figure out what TikTok was. What is it that required the full weight of the Presidency of the United States? Why do the US and other countries want to ban it? Why are the news paying so much attention to it? Why does TikTok even matter? And why Microsoft (MSFT) and Twitter (TWTR) sniffing around?

Before downloading the app I knew that TikTok was a Chinese video-sharing social media app with short videos mostly about music and dancing. ByteDance, the parent company of TikTok, has 60,000 employees in 126 cities. Beside TikTok they have a bunch of other apps that I never heard of. It goes without saying that TikTok is one of the most popular social media app, especially among young people. Despite its rapid rise, there are still plenty of people — often, older people — who aren’t quite sure what TikTok is, including me until recently. It’s kinda of my job to know these things even if I don’t use them. And I’m a parent of two young guys, so maybe I should be concerned with what’s coming.

To give some background, I often create “ghost” accounts just to check things out and I notice that the same patterns recurring. First I don’t get it. I didn’t get Twitter at first and it took like five years before I started using it. I didn’t get Snapchap (SNAP) and still don’t. I didn’t get Reddit and now it’s awesome. I didn’t get Instagram and now I like it better than Facebook (FB). My thinking at first was “why use Instagram when you have Facebook?” Why use WhatsApp when you have Skype? Why have another app that does almost exactly the same thing as the other one? It takes me a while to understand these Internet trends. Now I use WhatsApp and keep Skype for my mom because the hassle and of getting her a new video conference app is not worth it. I use Twitter, Instagram, Reddit and dislike Facebook. And what they hell happened to Facebook? When I got it around 2006 it was just to post drunk pics. Now Facebook is a giant cluttered monster that decides elections results. You can also see FB’s influence on Instagram where they are starting to clutter the whole thing. So yeah social media is the toilet of the Internet and I’m stuck in it.

The Facebook WhatsApp Deal (Yes It’s Overvalued)

Facebook buys WhatsApp for $19 billion
This is the financial news that dominated the headlines for a while. The question in everybody’s mind was “Did Facebook overpaid for WhatsApp”? What’s next is an elaborated version of my response on a LinkedIn thread.

Being a “valuation” guy, these kinds of deals makes your head shake. It also shakes the core of valuation principles. It looks like I had it all wrong. I should scrap everything I learned and stick to this new principle: The less revenue you have, the higher your valuation.

Is the Facebook/WhatsApp deal over valued? If you rely on the ”standard” financial metrics that would be a yes. But since the numbers are off the chart it’s the reason we are talking about it. There’s probably a strategic side that I can’t value. (like eliminating a competitor, banking on growth, database mine gold…) After having some time to digest the news, I still think it makes no sense. However, the transaction makes Netflix and Tesla looked like deep value bargain stocks.

The transaction brings be back to the dot.com era, when ”this time it’s different”. New start-ups with no revenues were valued using the number of eyeballs hit your page got. Very little focus was on how to monetize the number of eyeballs metric. In the end the result was disastrous and a lot of people lost their savings. Today, particularly in the social media segment, I see a lot of the same ”this time it’s different” mentality, the favorite song of the market herd. It’s also a very dangerous tune often signaling an overbought stock or a market peak.

This type of apps can take off really fast. Just check Telegram, they are signing millions of users every day and the interface is almost identical to WhatsApp. For $19 billion you don’t get much barrier to entry. Anybody with some programming skill and the right backers/push can launch the “next big thing”. I’m sure the Telegram backers are waiting by the phone for a Google type company to call before the party is over.

Facebook actually tried to create their own WhatsApp clone with an app called Facebook Messenger. It was believed that FB could capitalize on their large user base but that failed miserably. In the end, I’m not sure how Facebook will make their money back for something that is likely to going to be free.

The winners in this transaction are the early investors (VCs, insiders, employees). The losers: Facebook shareholders. A comparable transaction is Microsoft’s purchase of Skype for $8 billion. As of today they still can’t turn a profit. (Using the same metrics, I wonder how much is Skype would sell for?)

The best line I have seen so far explaining the situation: ”Facebook spends $19 billion for WhatsApp. Looks like Facebook is trying to be….well the next Facebook.” I’m sure Zuckerberg will find a lot of hidden synergies between the twenty WhatsApp employees and the thousands at Facebook. ($1 billion per employee). This will end up being the biggest and fastest write-off of goodwill in human history.

On other thoughts, remember that huge press conference with Mark Zuckerberg/Facebook announcing they own smartphone (the iPhone killer)? Let me save you the Google search. Long story short, nobody was camping outside to be buy it and AT&T drop the price for $99 to a liquidation price of a $0.99! Would you still buy it for that much? http://goo.gl/ENNDne

Facebook – It’s The Valuation Stupid (Lessons For Twitter)

Reposted from Seeking Alpha
By Brian Langis

Facebook’s (FB) stock price has finally soared past its initial IPO target. Facebook is currently trading at ~$50 which is good enough for a monster one year return of 130%. The stock has been on a tear and everybody is merry. Basically, I’m here to suggest that if you made money holding your Facebook shares, good for you and cash out while it’s hot. Why? It’s all about the valuation, not Facebook. Facebook is great company. The valuation is not. Sometimes we confuse the two.

What do the IPOs of Facebook, Zynga (ZNGA), and Groupon (GRPN) all have in common? They all had excessive initial valuation. With the Twitter (TWTR) IPO coming soon, we can already hear Wall-Street marketing drums going to work. Goldman Sachs, the lead underwriter, will be pricing the company for the offering, not valuing it. A stock has a price and a value. Very often they are not in sync with each other. Like the companies mentioned above, Twitter is a nice successful story but its valuation is out of whack.

First, this article will briefly review the factors that lead to an over valuation of Facebook. Second, with the Twitter IPO coming soon, I want to point out the lessons learned from these IPO flops.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rest of the article is here.

Facebook artist millionnaire David Choe Interview on Howard Stern (Video)

Voilà an over the top interview with David Choe by Howard Stern. It’s very raw, very honest, and it’s not for the sensitive hears. If you are familiar with Howard Stern’s interviews then you know what to expect.

Why am I suggesting this weird video? David Choe might not be the ideal image of a role model but beneath all the garbage talk and jokes, there are some life lessons in it. The medias are addicted to his story. If you managed to listen to the whole thing, the central message is to pursue what you like doing no matter what. Do what you like. Pursue your passions. Have fun doing it. Money is secondary, it will be a result of your hard work and dedications. Live everyday like it could be your last. Seriously. It’s the only life you got. When are you ever going to be happy? Might as well be it now.

Who is David Choe?
You might have heard bits and pieces here and there. David Choe is the artist that turned down $60k for FB shares when FB was in its start-up stage. Looks like a no-brainer today, but back then FB was nothing but a crazy idea (Myspace was king). David couldn’t even get a FB account because it was only for college students. He didn’t think it was going to make it either but he was friend with Sean Parker (Napster guy) and knew that he was smart with a track record of making money with crazy ideas. He followed his gambler instinct. Now his FB shares are estimated to be worth between $140-$200 million. Nice call David. But he is more than just the traditional artists. He life story is just as crazy.

Enjoy!

Annual Highlights Politics & Business 2012

You will find The Economist annual business & politics review.

Reposted Highlights from The Economist online’s The world this year

Business
» Apple became the most valuable company ever (in nominal terms), beating the record that Microsoft hit in December 1999. Apple’s share price peaked at $705 before entering bear territory and falling by 25%, to $510; at the start of 2012 it had been $410.

» The most eagerly awaited IPO in years was deemed a flop. Facebook’s shares soon sagged from the price of $38 set on its stockmarket debut; three months later they were under $18 (they have since risen). Critics said Facebook had set the price too high; still, the IPO raised $16 billion for the company and its early backers.

Google set to past Microsoft in Market Valuation

Google is set to past Microsoft in market valuation. Google’s stock has been on fire since the summer and is trading all-time high while Microsoft has been pretty flat in the last 10 years with a little growth lately. The future of Microsoft is on the shoulders of Windows 8 which is currently being rolled out. I also wouldn’t count MSFT in the long run. They are getting into the hardware with the Surface and a potential phone. Hopes are high with Windows 8 and its push in the tablet/mobile segment.

As of 9:54ET October 1st:

GOOG market cap: $247.29B
MSFT: $249.49B

Comparable market cap:
FB: $48.1B
AAPL: $627.69B (#1 in the world)

Figures in $US and provided by Yahoo

Facebook got Trashed

On September by 22nd Andrew Bary from Barron’s ran an article on Facebook. It’s very similar to what mentioned a couple months ago and anyone with a basic sense of valuation. It’s a very good truthful no fluff article. The article doesn’t try to intentionally damage the company like a lot of the crap on the web. The article simply states the obvious. Why is this stock trading at such high multiples? The IPO valuation was out of this world. The valuation is still out of whack today. The results has been disappointing investors. Here is a sample of what I wrote June 22nd:

So how much is FB worth?
Let’s say the earning per share doubles from .40 to .80 cent per share in the next 5 years. With a PE of 15x = $12
20x = $16

This is not hard math. This is not heavy research due diligence insider information stuff. This is simple back of the napkin reasonable valuation. Facebook needs to prove that it has a business model. Google has one. Apple has one. And they are both making a killing and there shares are trading at reasonable valuation.

The only thing that I see when buying this stock is
1) The dream of potentially finding a way to monetize their 950 millions users.
2) Figuring out mobile

Facebook is doing everything they can to lose me. They change their model/interface way too often, alienating me. Can you get rid of that timeline? The page looks like puke. But I do like the banner at the top of the page. That’s nice. Their is tons of issues with their privacy settings. I clicked on “like” on a friend jogging’s picture and as soon as I refreshed the page I got swamp with jogging ads. I go on Facebook because that’s where you go, just like it’s the only bar in town. It’s doesn’t have to be good but that’s where everyone is.

There aren’t any alternative. They won’t be for a while. Google+ seems to pick up steam but hasn’t reached that tipping point. It has over 200M+ accounts but I think most of them are just ghost accounts. I don’t know anyone spending time on Google+. Facebook has this high-switching cost stickiness to it. Your friends are on it, your groups, your pics, your games etc….that doesn’t change overnight. So the at the moment, the hassle is > than the benefit of switching.

Now the article:

…the stock trades at high multiples of both sales and earnings, even as uncertainty about the outlook for its business grows.

if history repeats itself… (post Facebook IPO predictions)

Nice reprint from Chris Dixon on Facebook. I just stumble on that piece but he actually wrote it back in January, before the Facebook IPO. He made some nice logical predictions. I wonder up to what extension the Facebook IPO disaster would have affected his prediction. Didn’t that help that’s for sure. Chris is Co-founder/CEO of Hunch (acquired by eBay). Follow him at cdixon.org Original here.

If history repeats itself, the Facebook IPO will mean:

– a bunch of second-tier social media companies go public to satisfy
investor demand for “social media allocations”
http://cdixon.org/2011/06/16/allocation-investing-and-the-social-premium/
(facebook’s reportedly small float of 5b will make this more likely)

– high private valuations for social media companies will last at
least another year

Information Ring – August Back to School Edition

Dear folks,
Thank you so much for the positive comments I have received on the previous emails. Because of the positive feedback I decided to make it better to keep the momentum going. I invite you to read the new edition on my blog at brianlangis.wordpress.com There is more contents, the display is better, more visuals, files, comments and I also post occasionally. Enjoy reading about Zynga, Romney vs Obama, Manchester-United, Usain Bolt, RIM, Glass-Steagall, a couple videos, a hot police chase and more.

Also free to check out emergingfrontiersblog.com
Me and colleagues are tracking down frontier market news at Leopard Capital’s frontier market blog emergingfrontiersblog.com

Twitter: #absolut_brian
Linkedin: http://www.linkedin.com/in/brianlangis

Enjoy!

Zynga a Speculative Value Play?
ZNGA is trading for about $3 with a market cap of 3.9b. This is far from the $10 IPO. The stock has been getting slaughtered because of slower growth forecast. The investment thesis: With about $1.5b in cash or $2 per share, you are buying Zynga on the cheap, almost entirely for its cash. They also own their $233m office in San Francisco. This is the kind of valuation you see in companies in distressed situations but Zynga isn’t burning any cash and that’s important. With only $100m in debt and a current ratio of 2.24x (It means that they can pay their bills for a while) you might be in for a safe bet. The risks: A Facebook crash, shitty games, terrible management, or they start blowing the cash on shitty acquisition. So tell your friends to load up their credit card with virtual potatoes.

Facebook revenue rises 32 per cent

Reposted from The Globe and Mail
By SAN FRANCISCO — Reuters

Facebook Inc.’s revenue increased 32 per cent in the second quarter, as the social networking company said its number of users had grown to 955 million.

Shares of Facebook, which went public in a rocky initial public offering in May, were down 6.1 per cent a t $25.20 in after-hours trading on Thursday.